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Candlestick is one of the most chapters in trading and reading and understanding candlestick is one of the most important skills that every trader must know and learn.
Therefore, In this article, I will cover How to read candlestick charts?, Candlestick patterns, Bullish candlestick patterns & more
What is Candlestick?
A candlestick chart is a type of price chart used in technical analysis that displays the high, low, open, and closing prices of a security for a specific period.
It is said that the candlestick was introduced in the early 18th century.
Much of its credit for candlestick charting goes to Muneshisa Homma (1724 – 1803), a rice merchant from Sakata, Japan. who traded in the Ojima Rice market in Osaka during, Tokugawa, Shogunate.
In this article, I will also cover Hammer candlestick, Shooting Star candlestick, Inverted Hammer candlestick & more.
How to read the Candlestick chart?
Candlestick reflects the impact of investors sentiments on the price and is used by technical analysts to determine when to enter or exit the trades.
The candlestick is commonly formed as high, low, close & open.
There are basically two types of candlesticks pattern:
- Bearish Candle
- Bullish Candle
If the opening price is higher than the closing price then a bearish candle is formed.
Similarly, If the closing price is higher than the opening price then a bullish candle is formed.
Important points:
- If we see a long white or green candlestick pattern that indicates that there is a strong buying pressure, this typically indicates that the price is bullish.
- Similarly, If we see a long black/red candlestick pattern that indicates that there is a strong selling pressure, this typically indicates that the price is bearish.
- If the long white or green candle is formed near the support level it indicates a strong buy trade.
- Similarly, If the long black or red candle is formed near the resistance level it indicates a strong sell trade.
- The body of the candlestick represents the difference between the opening and closing price, whereas the shadows show the high and low prices for the period.
Bullish Candlestick Patterns
Hammer
Hammer Candlestick is the price pattern in a candlestick that occurs when a security trades significantly lower than the opening.
A Hammer candlestick pattern occurs after the price of the security has been declining and the market trying to find the bottom.
This type of candlestick usually signals the end of the trend and the start of a new era.
Inverted Hammer
Inverted Hammer is a reversal candlestick pattern in an inverted hammer shape.
This candlestick pattern is similar to the Hammer candlestick pattern the only difference is that the upper wick in this pattern is long while the body is short.
This pattern indicates that either buyers or sellers made enough profit for the day and are ready to exit the market.
Bullish Engulfing Pattern
Bullish Engulfing Pattern is one of the most popular candlestick patterns used by traders to make buy calls.
The Bullish Engulfing candle is the first that appears big downtrend and engulfs the last bearish candle.
Morning Star
Morning Star is the stock price pattern used by traders to find possible bullish calls.
The Morning star is the three candles bullish pattern that appears at the down of downtrend or near the support level.
In Morning Star, the first candle must be a strong bearish candle.
The second candle must have a small body with a small wick different to the colour while the third candle must be a strong bullish candle.
Piercing Line
A piercing line is a two candlestick pattern used by traders to find the possible trend reversal.
This candlestick is most effective if found during the downtrend.
If the first candle is a big bearish body followed by a big bullish body then it indicates a bullish trend.
Bearish Candlestick Patterns
Hanging Man
Hanging Man is a bearish candlestick pattern used by traders to find the possible bearish trend.
This pattern is more effective if it forms at the end of an uptrend.
Evening Star
Evening Star is one of my favourite candlestick patterns this candlestick pattern is exactly the opposite of the Morning star candle.
The Evening Star is a three candlestick bearish pattern that appears at the top of the uptrend.
This candlestick pattern represents the confusion between the buyers and sellers and later the sellers dominating the market.
Bearish Engulfing Pattern
The Bearish engulfing pattern is the two candlestick patterns used by traders to find the possible Sell calls.
This candlestick pattern is just opposite to the Bullish Engulfing pattern.
If we see a big strong red candle after a good uptrend it signifies that buyers are exiting the market and the trend can soon reverse.
Three Black Crows
Three Black Crows is multiple candlestick patterns used by traders to find the possible downtrend to an uptrend.
It unfolds across the three trading sessions and consists of three bearish candles like a staircase.
This candlestick pattern usually comes after a strong uptrend which indicates that the buyers have made enough for the day and are willing to exit the market.
Shooting Star
Shooting Star is just like an inverted hammer. but is formed near an uptrend.
It has a small body with a long wick.
This pattern signifies that sellers are trying their best to push the market down and change the trend.
Summary:
Candlestick is one of the most important chapters in the books of trading and every trader must know how to trade and understand the candlestick patterns properly.
A candlestick chart is a type of price chart used in technical analysis that displays the high, low, open, and close of the security for a specific period.
It is said that the candlestick was introduced in the early 18th century and was developed by Muneshisa Homma.
` Candlestick reflects the impact of the investor’s sentiments on the price and is used in Techincal analysis to determine the trend in the market.
There are basically two types of candlestick patterns:
- Bearish Candlestick
- Bullish Candlestick
In this article, I have shared the top most important candlestick patterns that you must know while trading.
Today, I have covered How to read candlestick charts?, Candlestick patterns, Bullish candlestick patterns, Hammer candlestick, Shooting Star candlestick, Inverted Hammer candlestick & more.
